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A coach and horses being driven through merger law? – the Eurotunnel / SeaFrance saga continues

On 19 May 2015, the CMA announced that it intends to seek permission to appeal the Court of Appeal judgment in the Eurotunnel/SeaFrance case to the Supreme Court after the Court of Appeal ruled against the CMA on the 15 May 2015. It is the latest development in a case going back to June 2013 and acts as an important clarification on when buying a liquidated company triggers merger control as the acquisition is considered an acquisition of an enterprise under section 23 of the Enterprise Act 2002.

The facts

The facts of the case concern the now defunct SeaFrance ferries which crossed between Dover and Calais. The business went into liquidation in November 2011. Within months of this liquidation, Groupe Eurotunnel S.A. (Eurotunnel), purchased many of the former SeaFrance assets. This included three ferries, customer records and IT software and Eurotunnel began running a similar service to the liquidated SeaFrance ferries under the trade name; ‘MyFerryLink’. The assets were purchased in conjunction with a co-operative of former SeaFrance employees, many of whom subsequently got jobs under the MyFerryLink brand, operating the ferries as before.

The CMA’s decision

The purchase of the former SeaFrance assets was considered by the CMA to be the purchase of an ‘enterprise’ under the meaning of the Enterprise Act 2002. The CMA believed that although the purchase had followed the liquidation of the former SeaFrance, in reality, it was not the purchase of assets but rather an enterprise or going concern as the business could be turned around in such a short time in order to operate on a similar basis to how it had operated before, albeit under a different brand name. This was withstanding the fact that the former employees had been formally dismissed and the berthing slots for the ships given up. The CMA therefore asserted they had jurisdiction to assess the purchase under the UK merger control regime and that the co-operative and Eurotunnel were acting as associated persons under the Enterprise Act when they purchased the enterprise.

After deciding they had jurisdiction to investigate the purchase, the CMA asserted that the acquisition brought serious competition concerns due to the overlap of the Eurotunnel, train based crossing and the acquisition of one of only several sea ferry operators between Dover and Calais. Subsequently, the CMA (actually its predecessor the Competition Commission) ruled in July 2013 that Eurotunnel must either sell the ferry business or stop operating it for a period of ten years.

The CAT’s decision

Perhaps unsurprisingly, the CMA’s decision was appealed by Eurotunnel under section 120 of the Enterprise Act 2002 to the Competition Appeal Tribunal (CAT). The CAT upheld the CMA claims and considered it correct to consider the co-operative and Eurotunnel as a single entity for the purposes of the acquisition, and that the acquisition should be considered the acquisition of an enterprise within the meaning of the Enterprise Act 2002. However, permission was granted to appeal to the Court of Appeal on jurisdictional grounds concerning the CMA’s ability to assess the competitive effect of the purchase.

The Court of Appeal and the Supreme Court

As mentioned in the introduction, the Court of Appeal overturned the CAT and CMA’s analysis in a majority decision on the basis that the CAT had erred in finding that the former SeaFrance employees had transferred to Eurotunnel and the Co-operative. The Court of Appeal instead believed they had been re-hired separately under new contracts following the termination of their SeaFrance contracts and therefore the CMA did not have jurisdiction in assessing the competitive effects of the acquisition. Only four days after this judgment, the CMA announced their intention to seek appeal of the decision to the Supreme Court for final adjudication on their jurisdiction in this matter.

The conclusion of this case could have widespread implications if the Court of Appeal reasoning is upheld in the Supreme Court or otherwise allowed to stand. Whilst the majority opinion in the Court of Appeal follows simple and clear reasoning of when a relationship of employment has come to an end, a policy decision by the CMA to investigate such acquisitions should be defended. It is conceivable to imagine a situation where acquisitions such as this were structured as liquidations and then the purchase of assets to avoid merger control review if the opinion of the Court of Appeal majority were to prevail in future cases. Dominant firms could act in underhand ways, employing this liquidation and purchase tactic if either they knew they would be denied merger clearance in highly concentrated markets and when their actions themselves have led to the liquidation of a main competitor. It is clear why the CMA believes this case to be of national importance and has continued to defend its position.

We shall follow the Supreme Court’s reasoning closely when it is available.

Compare jurisdictions: Merger Control

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